NCLAT: Corporate Debtor Not Barred From Contesting Application Under Section 9 For Failure To Reply To Section 8 Notice

NCLAT: Corporate Debtor Not Barred From Contesting Application Under Section 9 For Failure To Reply To Section 8 Notice

The National Company Law Appellate Tribunal (NCLAT), New Delhi bench, comprising Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member), and Mr. Indevar Pandey (Technical Member), has clarified that a Corporate Debtor cannot be barred from contesting an application filed under Section 9 of the Insolvency and Bankruptcy Code (IBC) just because it failed to respond to a demand notice issued by the Operational Creditor under Section 8 of the Code.

The appellant, Spik Enviro Management Pvt. Ltd., filed an application under Section 9 of the IBC on August 18, 2020, claiming Rs. 2,77,68,000/- as due and payable by Vision Earthcare Pvt. Ltd. (the Corporate Debtor). The Corporate Debtor had received work orders from three Gujarat-based companies through the Operational Creditor. However, instead of making the payment, the Corporate Debtor issued a notice on July 18, 2020, asking the Operational Creditor's director to resign from the board. In response, the Operational Creditor sent a demand notice under Section 8 of the IBC for the claimed amount, but the Corporate Debtor did not reply. Later, on April 1, 2021, the Corporate Debtor filed a response to the Section 9 petition, disputing the claim and asserting that the agreement was not executed with the appellant.

The key issue before the Tribunal was whether the Corporate Debtor could raise a defense in response to the Section 9 application without replying to the demand notice issued under Section 8.

The Tribunal noted that the issuance of a demand notice under Section 8 is a prerequisite for filing a Section 9 application. The Operational Creditor must send the notice claiming unpaid operational debt, accompanied by an invoice. The Corporate Debtor is given 10 days to respond to the notice, either by making the payment or indicating a dispute. If no payment or dispute is raised within this period, the Operational Creditor can proceed with the application under Section 9, seeking initiation of the Corporate Insolvency Resolution Process (CIRP).

The Tribunal rejected the argument that the Corporate Debtor was barred from contesting the Section 9 application solely because it did not reply to the Section 8 notice. It held that while the notice under Section 8 is a mandatory step for maintaining a Section 9 application, the failure of the Corporate Debtor to respond to the notice does not prevent it from raising defenses in the Section 9 application.

The NCLAT dismissed the appeal, affirming that the Corporate Debtor is not precluded from contesting the Section 9 application, even if no reply was given to the demand notice issued under Section 8 of the Code.